Hidden Rental Property Costs That Can Sabotage Your Profits

No matter how well you plan, there are always going to be costs associated with being a landlord that can eat into your profits. Unfortunately, many of these costs are things that landlords don’t think to plan for, which can lead to unpleasant surprises down the road. 

By understanding these hidden costs and incorporating them into your budget, you can avoid financial pitfalls and make sure that your rental property stays profitable.

Hidden Costs That Landlords Often Forget About

As a property owner, you're responsible for a lot more than just collecting rent each month. In fact, you may be surprised to learn about some of the unforeseen costs that can eat into your profits and put a dent in your account.

Here are some hidden rental property costs that you need to be aware of:

Maintenance and Repair Costs

You're responsible for keeping your rental property in good condition, which means making sure that regularly scheduled repairs and preventive maintenance go off without a hitch. This can include anything from fixing a broken window to repairing a leaking roof or unclogging a drain. These costs can quickly add up, so it's important to factor them into your budget.

Property Management Fees

If you're not managing your own property, you'll need to hire a professional property manager. While this can be a big help in terms of reducing your workload, it also comes with a cost. Property management fees typically range from about 4 – 10% of the monthly rent, so make sure to leave space for this in your budget.

Insurance Premiums

As a landlord, you're responsible for insuring your property against damage. This includes both property damage insurance and liability insurance, in case someone is injured on your property. The cost of premiums will vary depending on the value of your property and the location, so be sure to get quotes from multiple insurers before making a decision.

Taxes and Other Government Fees

Owning rental property also means being subject to various taxes and government fees. This can include things like property taxes, water and sewage fees, and trash collection charges. In some areas, there may also be special assessments for things like street repairs or new construction in the area that can add to your costs.

Utility Bills

In most cases, the tenant will be responsible for paying the monthly utility bills for things like water, electricity, and gas. However, there are some situations where the landlord may be responsible for these costs. Be sure to check your local laws to see who is responsible for paying utilities in your area and ensure that this is clearly outlined in all of your leases.

Legal Fees

There will be occasions when you need to consult with a lawyer, whether it's to draft a lease agreement or handle an eviction. While legal fees can vary depending on the situation, you should budget for at least a few hundred dollars in case you need to seek legal assistance. This will help you stay prepared, no matter what happens down the road.

How to Account for Hidden Costs When Budgeting for a Rental Property

There are things you can do to mitigate or even eliminate these risks and keep your rental property profitable. By having a realistic and accurate budget for your rental property, you can avoid many of the financial surprises and pitfalls that can happen to less-prepared landlords.

Here are a few tips for budgeting safely for a rental property:

Perform a Property Market and Investment Analysis

You need to know rental property expenses prior to renting, like the average rental price, vacancy rates, and types of properties that are in demand. This information will help you determine how much rent you can realistically charge and what type of property will be most profitable.

Utilize a Rental Property Calculator

Many landlords jump into their first rental and charge what they believe to be a reasonable fee without doing enough research. This can leave them wondering what is a good rate of return on rental property? as they tally their profits — or lack thereof — from their first few months of rent collection. 

Using a rental property calculator is a great way to avoid this. This tool can help you determine if a particular property is a good investment and how much profit you could make from it.

Choose Your Tenants Wisely

Carefully screening tenants is one of the best ways to avoid costly surprises down the road. Be sure to check references, employment history, and credit scores. You can also require a security deposit or require that they purchase renter’s insurance to protect your property in case of damages.

Regularly Inspect and Maintain Your Property

By conducting regular inspections, you can catch minor problems before they turn into big (and expensive) ones. Make sure to keep up with routine maintenance like changing air filters and checking smoke detectors to avoid any costly surprises.

Use a Property Management Software

At ExactEstate, we’ll take into account all of the potential profits and expenses for your rental property so that you don't have to. This can save you a lot of time and energy in the long run that you can put towards other aspects of your business.

The Importance of Preparing for Unexpected Expenses

Just like with any business, running a rental property comes with its own set of expenses — some expected, and some not so much. To make sure your rental property is as profitable as possible, you need to take into account all of the costs associated with it, not just the obvious ones. 

Being prepared for unexpected expenses is crucial to keeping your rental business in the black. Here’s why:

Rental Property Is an Investment

Like all investments, a rental property comes with its own set of risks. One of the most significant risks is the potential for expensive repairs or upgrades that you didn't plan for. To avoid this, it's crucial to have a buffer set aside expressly for unexpected expenses. This way, if something does come up, you won't have to dip into your other operating costs — which could jeopardize the profitability of your business.

Unexpected Expenses Can Happen at Any Time

It's also crucial to prepare for unexpected expenses because they can happen at any time. From a broken water heater to a faulty AC unit, several things can go wrong with a rental property — and they often do at the most inopportune times. By having a fund specifically for unexpected repairs, you can rest assured knowing that you won't have to scramble to come up with the money to fix it when something does go wrong.

It's Better to Be Safe Than Sorry

At the end of the day, it's always better to be safe than sorry — especially when it comes to your business. By having a buffer set aside for unexpected expenses, you can protect your rental business from potential financial ruin. So, if you're not already doing so, be sure to start setting aside money specifically for unexpected repairs and upgrades. This way, you can keep your business profitable, no matter what rental property expense comes your way.

Conclusion

With everything you need to keep in mind as a rental property owner, it is essential to remember one key point: always expect the unexpected. If you’re looking for a more effective way to manage your rental property business, consider requesting a demo with us. Our software was created with rental property owners in mind to help you streamline the process of managing your rentals. At ExactEstate, we understand the challenges of being a rental property owner — and we are here to help!